The thing about useful stuff is

UBS switch their LSE clearing to X-Clear Wednesday, December 03, 2008

Image via WikipediaIt wasn't a huge surprise to see that UBS was going to switch its' clearing for its' London Stock Exchange ["LSE"] traded equity business to the Swiss based X-Clear from LCH.Clearnet. After all,

they are both Swiss and you should never under-estimate the power of relationships e.g. inevitably, UBS personnel will be on advisory boards at X-Clear and will be one of the largest X-Clear users in Switzerland
they will probably enjoy margin netting benefits by combining their their Swiss and UK equity business at a single clearer, which will be financially beneficially
they may enjoy cheaper tariffs or better margin rates

It was possible for UBS to do this after the LSE decided to allow X-Clear to offer clearing services in competition with its long-standing clearer, LCH.Clearnet. Unlike a number of its' rival exchanges including the Swiss Exchange which is part of the same group that owns X-Clear, LSE doesn't own and operate its' own clearer, with the consequence it doesn't face losing revenue from opening up this element of the trade lifecycle to competition.

However, I chuckled when reading the comment made by Robert Barnes, managing director, equities at UBS who said "that by deciding to switch to X-Clear, UBS believed that it would help accelerate a “market-driven” solution to interoperability, rather than waiting for regulators to apply further pressure to get the process moving."

Firstly, it was the LSE's decision to enable competition that allowed this to happen, albeit evidence of client support for this must have existed. Secondly, UBS are doing this for financial reasons rather than on altruisic grounds for the "good of the market". Perhaps UBS should now be using its' market clout to insist that other markets, including Switzerland and Germany, follow suit.

Labels: Depository Trust and Clearing Corporation, LCH, London Stock Exchange, LSE, UBS

posted by John Wilson @ 10:34 AM Permanent Link ,

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DTCC buys their way into Europe Wednesday, October 22, 2008

After many years of fruitless toil in Europe [read London], DTCC has evidently decided to rapidly accelerate Diana Chan's attempt to build a clearing business for DTCC in Europe and is to buy LCH.Clearnet for €739 million. The announcement is here.

EuroCCP, DTCC's European subsidiary, had won business from Turquoise but in taking over one of the major European players, DTCC has instantly vaulted up the central counterparty league table in Europe. Interestingly, the existing LCH CEO, Roger Liddell whom I briefly worked with at Goldman, will be the CEO of the new combined European entity ["LCH.Clearnet HoldCo"].

Roger was made Head of Global Operations at Goldman Sachs in 2000. He was responsible for all businesses including equities, fixed income, foreign exchange, derivatives, commodities, asset management, prime brokerage and private wealth management. He is already very well known to DTCC as a consequence.

Where this leaves Diana Chan and her experienced COO, Trevor Spanner, is presently unclear.

I suspect that the combined entity in Europe will simply adopt LCH's systems, requiring Turquoise to migrate platforms. The larger question is to what extent DTCC will embark on the ambitious project to integrate the European infrastructure with the domestic US infrastructure.

Labels: CCP, Depository Trust and Clearing Corporation, DTCC, LCH

posted by John Wilson @ 9:53 AM Permanent Link ,

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Clearing up Lehman pending settlements Wednesday, September 17, 2008

News is seeping out about the unwinding of the pending settlements [trades executed but yet to settle] and open interest in exchange traded as well as OTC contracts.

Firstly, Reuters reports that JP Morgan lent $87m to Lehman subsidiaries on Monday to enable them to clear and facilitate securities transactions, but apparently the New York Fed repaid them.

Next, LCH has declared Lehman in default and begun the process of unwinding and moving their trades. Lehman was a clearing member of LCH, acting on behalf of clients as well as its' own trading on variety of Exchanges. Lehman was also a Swapclear member, which clears OTC Interest Rate Swaps.

The easiest transfers are for those clients who traded on a segregated basis i.e. their trades were processed via and held in separate accounts from those of Lehman. Much harder to separate out are clients trades processed through non-segregated accounts in which will be co-mingled Lehman's own proprietary trades and will inevitably require Administrator assistance.

Clients have to make a positive decision as to whether to be segregated or not but firms usually incentivise them to be non-segregated e.g. higher interest rate on credit balances, in order that they can utilise the client assets, which is not permissible with segregated balances.

Any losses resulting from unwinding the business of Lehman will be offset against the margin balances Lehman had with the Clearing House. If these balances are insufficient, then a call will be made on the Default Fund which is funded by the members.

The exercise to close a trading firm is a huge undertaking - you don't simply close the doors because at any point in time, there is considerable activity "in progress" all of which needs to be unwound. It is likely to take months before the majority of the work is done.